Rising costs, mega profits, price fixing… We must make energy companies more accountable

With another winter of energy price hikes and allegations of “Libor-like” fixing of wholesale gas prices, is it not time to investigate the limitations of private utilities running our energy supplies? Murad Qureshi AM (Labour, Londonwide) investigates

This week I visited a food bank in Peckham, south east London, with my London Assembly health and environment committee colleagues. While there I heard the tragic story of a single mother who has been driven to rely on the food bank to feed her and her children, because of the increasing cost of keeping her family warm.

Last month her energy supplier hiked the cost of her energy by six per cent. In the flurry of price rises announced in October, this was rather moderate, with energy companies such as EDF (the biggest supplier of energy to Londoners) hiking prices by 11%.

This is against the backdrop of sustained energy price inflation, where over the past two years energy bills soared by a massive £200 a year, contributing to the cost of living crisis now afflicting millions of families across the UK.

National Energy Action estimates that for every one per cent increase in energy prices, 40,000 customers are dropped into fuel poverty nationally. The Mayor believes more than 560,000 London households are fuel poor.

This is incredibly important. Fuel poverty accounts for well over 3,710 excess winter deaths in London per year and the ailments associated with inadequate heating costing the NHS some £850 million annually. Energy company price hikes incur a high cost for society and the public purse. Yet, the decisions to hike prices prioritise the need for operators to make a profit above the appalling social cost.

At a London Assembly health and environment committee meeting earlier this month I questioned EDF and British Gas about their energy pricing policy. Both admitted the need to make a profit, despite thousands of Londoners being pushed into fuel poverty.

British Gas told me:

“…we had to increase prices, we have to make a profit, we are a commercial organisation. We do only make five per cent profit and we have maintained that five per cent for many years.”

That “five per cent profit” was £345 million over the first half of this year alone.

There is something hugely inequitable with a system where private utility suppliers are free to hike prices in this way at a time when the public is struggling to make ends meet.

Energy companies hold customers over a barrel for services essential to our basic sustenance, prioritising operating profits over basic public needs. It is not unreasonable to suggest there should be an energy market model in place, which does not force low-income households to choose between heating and eating.

I also questioned EDF about the difference between energy prices in France, where customers have seen just a 2% increase, and the UK, where customers have been hit with an 11% price hike. While stating the presence of nuclear energy in France has produced some stability in French wholesale energy prices, the response pointed directly to the fact EDF, in the UK, is a private, profit-making, company. This is very different to their status in France.

To rub salt into the wound, EDF was a high profile corporate sponsor (‘sustainability partner’) of London 2012. Yet almost immediately after the games EDF has slammed huge price hikes on UK customers.

The difference in energy price rises from the same supplier across different European countries must be looked into by our counterparts in the European Parliament, as a matter of European competition policy. Furthermore, if the “Libor-like” fixing of wholesale gas prices are confirmed by the investigations of the FSA and OFGEM, it really will shine a light on the flawed private utilities model.

EDF told me:

“Yes, so we had to raise our prices recently, as the other energy companies have. It was unavoidable unfortunately due to rising wholesale costs as well as social and environmental obligations on energy companies.”

That the wholesale market is potentially corruptible should be a cause for concern. But if the energy providers are shown to have exploited this, then where does this leave the private utility market?

As things stand, our immediate short term hope is for a mild winter.

In the long term, we should look again at whether the interests of consumers are best served by the private utilities model and weak regulatory system that is unable to prevent extortionate price hikes that ignore the impact on households.